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Industry Spotlight Ep. 1: LTC REIT

LTC REIT’s co-presidents Pam Kessler and Clint Malin discuss the company’s focus and passion for the senior living industry.

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Lucas: Welcome to Bridge the Gap podcast, the senior living podcast with Josh and Lucas. This is an Industry Spotlight Thursday. We’re really, really happy to have some great guests on the program today. LTC co-presidents. We’ve got Pam Kessler and Clint Malin. Welcome to the program.

Clint: Thanks for having us.

Pam: Thanks for having us. Hi, Josh.

Josh: Hello. It’s great to have you all with us. Thanks for taking time.

Lucas: Pam, I can’t believe how, how long it seems since we’ve seen you. We had the pleasure of sitting down with you at the spring NIC Conference earlier this year and had a great conversation and our world looks a little bit different, but we’re happy to get remote conversations going with both of you. So welcome today.

LISTEN TO PAM KESSLER ON EPISODE 111.

Pam: Thank you. It seems like an eternity ago that we just sat down. You’re right. It was much different.

Lucas: Well, and we’re excited to have Clint on the program as well. All right. So leading into our discussion today, we’ve got a number of topics to go over and Clint, this is your first time in the program. So we’ll start with you. Let’s talk about business philosophy from a perspective, what do you think makes a great partnership?

Clint: What we think makes a great partnership is it is a collaborative approach to doing business. We strive to be responsive to the needs of our operating partners by offering different types of financing solutions, anywhere from a long term permanent financing through triple net lease structures to development financing, loans, as well as structured finance products. So being an offer to them, being able to offer that array of products to an opera, we think is beneficial. Also we think that focusing on regionally based providers, which usually are smaller organizations or a better fit for the size of our organization, they want the smaller cap rate and there’s a better alignment of interests given the size of organizations.

Josh: So Clint, you mentioned regional operators is one of your focuses. Are there any specific characteristics or traits in an operator when you are looking to explore new relationships or partners that you’re specifically looking to?

Clint: Sure, that’s a good question. One of our main focuses is really understanding what the company’s approach is and knowing their limitations and their skillsets and their focuses. We like companies that don’t try to grow beyond their capabilities and operate outside of their existing markets. So we find an organization that can articulate to us what their strategic goals are and stay steadfast to those. We think they can be more nimble and take advantage of opportunities in their local markets, focusing on those markets.

Lucas: You know Pam, one of the taglines that you guys have that I find so fascinating, is a great tagline is called REIT done differently. How has LTC different from other REITs?

Pam: Well being a smaller capital healthcare REIT me have not opted to become involved in operations. And that’s something that some of the larger and medium sized peers of ours have done. And that’s essentially where it’s called the idea transaction and it’s where the capital provider takes an ownership stake in the operations of the healthcare real estate. And this results in additional recording and sometimes interference and operation decision-making that some operators find burdensome. We don’t believe the fee management structure results in the best alignment of interests for LTC. And we believe the operators are most motivated when the results of their efforts and successes are reflected and their bottom line profits. Another differentiating factor and an advantage for us over our larger peers is our size. As a smaller rate, we can focus on smaller deals that often get overlooked by our larger peers who seek to acquire big portfolios that often come with portfolio premiums. Smaller transactions are typically have better investment returns which results in meaningful earnings growth that supports our diversification efforts at LTC.

Clint: I think the thing to add to that also we’re not going in a preconceived notion with an awkward arm, how we have to deploy capital. We’re really trying to be proactive and identify operating companies to work with and bring a solution to them. So that may mean that an initial transaction with an operating company may be through a structured finance product or through a real estate joint venture or something that provides financing that maybe they’re more accustomed to organizations and haven’t utilized sales back financing. So we really try to be coming to listen to our operating partners and understand what their needs are. And over time be able to hopefully develop growth opportunities with them.

Pam: Right, rather than have like a cookie cutter approach that some of our larger peers or other capital providers may have. We really try to custom-tailor solutions to meet our operators needs. And as a smaller REIT, our operators are working with the decision makers. And I think that for us and for our operators that enables us to craft a customized solution for them that meets their needs. We really listen to our operators and try to work with solutions that that will optimize their results and meet their needs. 

Clint: You know, we think the side, although we weren’t quite, we are the smallest healthcare readout that we really used that to be an advantage to our organization, given the focus we have on regional based operating companies. We, as Pam mentioned, we have the ability to look at one off transactions, which we think have a better risk adjusted returns. And there’s not as much competition for one off transactions. So that is a small REIT, we can do smaller transactions, still be creative to the organization, but also allows us to help diversify our operator base. So we don’t have an operator concentration risk. 

Pam: Yeah, exactly. And we also seek to offer permanent financing solutions to our operators. So they don’t have to worry about refinancing risks or exit timelines that some equity providers require, which could involve an operator losing their operations of the property upon a scale, or requiring them to raise more equity. We believe the best use of an operator’s time and talent is running and expanding their business, not capital raising as a publicly traded REIT, we raise capital very efficiently and bring that competitive advantage to the table that help our operators.

Clint: One thing about operators too, is when we’re looking at evaluating operators, we actually like operators that have different capital structures and different financing sources. You know, we don’t want to be an exclusive provider of capital and, you know, you get with just one no one company we liked it diversification. So one thing we look at with offers is however they capitalize the organization. And we think that it’s a strength if they have a diversity of access to capital, if they own certain assets that gives them the ability to go ahead and refinance and financial flexibility, lease financing, joint venture partnerships with us is just another avenue of growth.

Josh: That brings us you know, one of the questions that we had for you all, obviously the world right now, as we are living in, it is a lot different than the first time we had the privilege of speaking with you all, which was just several months ago. And one of the many challenges that I think our industry is facing and operators are facing is the topic of financing. And you started touching on it there. So from your perspective, what are the top financing challenges and what are some of the tools that you guys are working towards with your operators to kind of meet those challenges?

Pam: Well, with the uncertainty regarding how the pandemic will affect cap rates, operating margins and labor pressures, long term, we’re currently focusing on shorter duration and higher yielding investments, like mezz loans and preferred equity. We haven’t backed away from underwriting investments during this time. We’re a longterm capital provider dedicated to this industry. But we’re just being more cautious than this environment. We’ve heard some banks have stopped underwriting in our space, either temporary or maybe not longterm pause. We’re not doing that. We’re just being more cautious and you know, expect when we either return to normal or we have greater visibility into what the new normal will look like. We’ve got a lot of dry powder, we’ve got great liquidity and we’ll be ready to invest at more full levels. We’ve got the gas pedal all the way to the floor right now.

Clint: Our business development team is actively engaged with various participants in the market from operators to bankers, to intermediaries to appraisers, just trying to get a sense of where opportunity might lie and, and where there could be situations for us to invest. As we see a price disconnect right now, on some assets that are coming to market, there is this price discovery processes taking place. But one area that we have seen in talking to various constituents in the marketplace is development financing has become reduced. A lot of the national banks and pulled back from development financing. And we have seen some opportunities where we have experienced operating companies that have a proven track record with development that have been able to source a substantial amount of equity. And there are certain regional banks providing development financing. You’ve seen an opportunity where we can come in and help companies by providing either preferred equity or mezzanine in the capital stack. And right now we’re seeing opportunities where we’re sitting in the capital stack at a lower percentage than we would pre COVID. So that’s definitely an opportunity we’re seeing right now. And especially with COVID, looking at selective gold projects that you think have a lot of equity, it’s an investment that takes off the pressure of, of COVID at the moment, because you’re not worrying about operations for another 18 to 24 months until a project comes online.

Josh: Interesting point. So transitioning just a little bit I’m assuming LTC, like the rest of the world has had to pivot and go virtual, and we’ve talked about virtual conferences and working from virtual offices. We’re all right now not in person doing this, we’re actually doing this over a virtual platform. How has that changed and how have you guys been able to respond to operators in your operations, in the new virtual world that we are living in currently?

Clint: It’s just an adaptation. I mean, you know, we look at it I give you example from various aspects. Obviously just within LTC, you know, we’ve been using communication channels as far as, you know, video conferencing for internal meetings, operators are utilizing virtual platforms for tours for family members. We’re looking at non-deal roadshows from an investor perspective, which are pretty much all converted to virtual. So I think this is just something that was available from a technology standpoint. People have the crutch of being able to travel and meet people in person and through this technology is really a more efficient platform to be able to to interact with people.

Great example of this is we’ve actually done a virtual property tour on an investment opportunity. And it was an interesting aspect because we saved time and money in doing that, but we actually were able to have a larger number of people on our team participate because of the virtual platform. So that was actually helpful. On some of the development projects that we’re looking at right now, the use of drone technology has been a very interesting aspect of being able to get a sense of the market, the site. So we’re trying to leverage as much as possible those aspects sort of in the new normal.

Pam: Yeah, I agree. I mean that the pandemic has accelerated the timeline for the adaptation and incorporation of the technology’s quite talked about telehealth. That’s been the virtual family visits and virtual virtual property tours by prospective residents in their families. And I think even after the threat of the pandemic has passed, these innovations can compliment and supplement the in person interactions with healthcare providers and family providing more frequent and convenient touch points for the residents because technology is all about convenience.

And if it’s easier for a resident to have a telehealth visit for a routine checkup, rather than have to get transportation, spend an hour at the doctor’s office and transportation home, and a family member or caregiver assisting them, the logistics are just much more convenient to do it via telehealth. Now it’s not going to replace all in-person contact. I think one thing we’ve learned through the pandemic is that we all crave human interaction and communication in person and touch points. But I think that technology can supplement that we can actually have more and more frequent interactions between family and doctors. I think, people are slow to change until a change is thrust upon us. And I think we’ve done a great job in embracing this and our office switched to work from home in less than a week, or IT manager, I’m not sure he got much sleep that week, but he set everybody up remotely to work from home. And, you know, we were able to hit the ground running. 

The human spirit is amazing. People are resilient and adaptable. And I think this is just one of the long history of humankind events that resulted in some permanent change.

Clint: Another interesting aspect also to the you know, the virtual tours for families. It’s no longer about the family member who’s living in the same location as a loved one. Who’s looking for a place where all of a sudden is using the example I gave of the virtual property tour that we get from an investment perspective by line, more of our joining no family members can participate regardless of where they live. So I think that can make it more of an inclusive family engagement. And then talking with operators in the space, the conversion rate of tour seems to be increasing because of the ability to get you have more serious people looking for placements than communities. The virtual tours are leading to people who are inquiring that are, that are more serious about moving.

Lucas: So another great topic is resident engagement. And there’s an exciting thing that you guys are a part of with Juniper. It’s called Virtual Connections. Tell us more about that.

Pam: Yeah. I’m in conjunction with Juniper, we created a website called Virtual Connection and it provides vital social engagement programming for seniors. And we’ve made this available for free, not just to our residents, the residents in our communities, but to seniors across the country. And it is really exciting. We rolled it out early and we continue to make improvements on it. And it’s been really well received. I actually Clint’s mother who is not, does not live in a senior housing community, it’s even using it and loves it the other day. He said I’m familiar with that program.

Clint: I was surprised about that. And this is an example in partnering with Juniper, where we have not only made the stuff a monetary contribution and being able to bring something where they’re supporting an organization or benefiting the industry somehow actually took on an active role in with Mandi Hogan in helping design and develop this in conjunction with Juniper. So it’s somewhere we’ve gotten more involved than we typically have outside of just financial sponsorship.

Josh: That’s a great point. So you know, I know a big, big part of who you guys are, is priding yourselves on not being as hands on with the operators, which I think is oftentimes a positive thing, you know, especially for the operators to take the pressure off of them sometimes at that perceived negativity. But there’s also some things just like Virtual Connections, which you’re actually lending a hand to your operators during this difficult time. So have you found yourself in positions at LTC to where all hands on deck and there’s resources and things that you’ve been able to come to the table with to really be there for your operators during these difficult times?

Clint: Absolutely. We were trying to get creative and see where we can probably benefit in contribution back to our operating partners. One area we’ve seen right now, where we can provide additional benefit for operators is there’s a lot of discussion in the marketplace right now about infection control. And there’s a lot of different ideas about solutions, different products, different vendors. So currently we’re working on a program that we call Smart Design that will assist our operators in retrofitting their communities to incorporate the latest state of art infection control technologies. In offering this product, we’re thinking beyond just COVID. We’re also thinking these technologies can be available to combat other viruses such as the seasonal flu, staph infections, things of that nature. And what we’re doing is we’ve actually been engaged with a third party consultant, trying to bring together a turnkey solution to be able to present to our operating partners different products that we’ve vetted with this consultant, to be able then to provide to our operators and provide a financing solution to that as well. So that’s what we’re actively engaged with right now on an additional aspect that we’re trying to bring benefit to our operating partners.

Pam: Another example of where we have jumped in and tried to help our operators isn’t as we listened to them and identified needs. As you recall, early on, there was a lot of chaos in the healthcare industry surrounding PPE. Amazingly, our industry was not prioritized in the rationing of the scarce, but Mandi Hogan, our VP of Marketing and Investor Relations, was quick to jump in with our operators and opened a portal on our website for them to a source PPE. There was a lot of confusion for prices for PPE range throughout the United States. I mean, our operators we’re competing with large hospital chains and other healthcare providers with PPE and the prices were just such a wide range, you know, operators were wondering, you know, I’m seeing this price here in North Carolina, what’s the price in Washington?

So we opened that portal where they could exchange ideas on sourcing PPE suppliers, compare pricing, and also exchange ideas like surrounding infection control protocols. We’ve come a long way since April. We’re learning new things about this virus even still and how it spreads. Our operators have been able to pivot and react quickly to the latest things in the news and latest protocols that are working for other operators.  I have to commend Mandi, give her props for recognizing this early beyond, and you know, working hard to provide this platform for our operators.

Clint: It was amazing to see how just the collaboration among the operating companies in that time of uncertainty and distress and being able to and being willing to share with us you know, sources where they found certain PPE. We found ourselves in a circumstance like how do we share this information? And actually the operators encouraged us to share it with others. So it was this collaborative industry approach that made you feel good about how companies were trying to come together collectively and help each other out.

Josh: Well, you know, Lucas, we’ve talked about that oftentimes and many times on this show where we believe this is where our industry shines and it’s in our team, spirit and collaboration, and the commitment, compassion that everyone that works in the industry has towards the common goal of providing great communities and services and healthcare to our wonderful senior adults and the older people that have come to live with us in our space. It’s really awesome to hear that echoed on this platform.

Pam: Yeah, there’s been some really heartwarming stories through this. There was a news piece maybe it’s been a month ago, two months ago about one of our residents his wife, he’s a resident in a memory care portion of the community. And he suffers from dementia and he and his wife had never been apart before and with the lockdown across the United States communities not being able to have visitors. His wife got very creative and she saw at the community a Help Wanted notice that they were looking for a dishwasher at the community. And so she applied for that position and got it. In that way, she was able to see her husband and provide the comfort and security of that he has, was used to every day of his life. And you know, that was the community embraced that, and they were able to do it within the proper protocols of the job. And it was just a really heartwarming story of how creative people have been through this and humanity, our operators and caregivers and residents and families, you’ve seen the signs held up as families do virtual visits outside. The residents are brought to the window and they can see their loved ones outside holding up signs. They’ve had visitation parades and it’s just been really heartwarming to see the community rally around our seniors.

Josh: It has and honestly, it’s been great to read about it when a time when I think there’s unfortunately negative press, I have personally read a couple of the stories that we’ve talked about that you just mentioned, and Virtual Connections have actually made national national press and helped to shine a positive light and reflect the wonderful things that are actually happening even during a difficult time. So LTC REIT. REIT done differently. I think we’re hearing a little bit about that today. Probably not what many of our listeners think about when they think about a REIT. So thank you all for your work that you do behind the scenes to support these awesome operators across the country, big and small, to help continue to produce love stories that can be shared for years to come from the wonderful industry. That’s part of why Bridge the Gap platform was made and created was to be able to share the wealth of information that folks like you bring to our industry. So thank you so much for being with us here today.

Pam: It’s our pleasure. Thank you for having us.

Clint: Thank you for having us.

Lucas: That’s right. Thank you, Clint and Pam, for a great conversation. And for those that are listening that want to know more information, you can go to BTGvoice.com and also check the show notes, and we’ll make sure that we connect with LTC and all of their information. And thanks everybody for listening to another great episode of Bridge the Gap. 

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Industry Spotlight Ep. 1: LTC REIT